Harvard’s Role As a Nonprofit

Harvard University is a nonprofit, not a business. This is one of the central arguments that we hear professors, politicians, and students make when they advocate for Harvard to be more socially and morally responsible. But does this claim mean anything? Should Harvard act any different as a nonprofit than as a business? The answer is yes—Harvard gains huge financial benefits as a nonprofit, and with these benefits come additional responsibilities toward the community that businesses do not always have.

The key difference concerns taxes. As a nonprofit, Harvard receives tax exemptions, deductions, and privileges that for-profit institutions must forgo. For example, besides innovative investing techniques, Harvard was able to build its endowment from $4.7 billion in 1990 to $37 billion in 2008 because it did not pay taxes on those gains. Relative to businesses, the federal government is subsidizing Harvard’s investment fund.

In addition, Harvard does not pay real-estate taxes. Instead, it makes voluntary payments in lieu of taxes. Last year, for all of Harvard’s property, it paid $1.9 million in lieu of taxes to the City of Boston. Boston officials estimate these payments would be 10 times as large if Harvard paid real-estate taxes. Partly due to these reduced expenses, Harvard currently owns over 923,000 square feet of property in Allston that are neither developed for Harvard’s purposes nor leased to Allston businesses. Harvard would be less likely to hold these land lots for long-term construction projects if it had to pay real-estate taxes on them.

As a nonprofit, Harvard also benefits from tax-deductible donations and a significant amount of federal grant money. Last year, Harvard received $651 million in donations. If donations to Harvard were not tax-deductible, this number would be a small fraction of this total. According to Harvard’s Office of Government, Community, and Public Affairs, Harvard received $535 million in federal grants in fiscal year 2008 that accounted for 82 percent of Harvard’s research revenue. Under the federal stimulus package, federal grants to Harvard are expected to increase considerably. Non-federally funded research is made possible through tax deductions on donations made by corporations and foundations.

We argue that these benefits bring added responsibility. If Harvard is to avoid hundreds of millions of dollars in taxes each year and economically dominate the communities of Cambridge and Allston, it must support these stakeholders as best it can in times of economic uncertainty. Kevin Casey, Harvard’s senior director of federal and state relations, has credited the university as one of the “stable bedrock institutions” that have helped guard the Boston area from the worst of the economic crisis. However, we remain unconvinced that this bedrock provides sufficient support for our community’s most vulnerable members. Although still valuable, student-run programs in the Phillips Brooks House and screenings this summer of “Finding Nemo” for local residents are not the solution to unemployment.

We argue that these benefits bring added responsibility besides just educating students and providing research, as there are plenty of for-profit institutions that fulfill these roles. In the midst of a recession, Harvard is in a better position than almost any other large institution to support the local community and national economy through providing fair and stable jobs. If Harvard thought it worthwhile to create these jobs, then it has the responsibility to keep them when Cambridge, Allston, and America need them the most. If Harvard continues to benefit from taxpayers and local community members, it must meaningfully and equitably include these members as stakeholders in its budgetary decisions.

The effects of cutting jobs are compounding and far-reaching. The low-wage jobs that have already been terminated once belonged to valuable members of our community, who obtain their health insurance and continuing education as benefits of working at Harvard. Having lost their employment, these people are now not only without income but also forced to enlist themselves and their families among the ranks of the uninsured and undereducated. The fact that many of these jobs belonged to the poor, marginalized, and mostly immigrant part of our community means that their unemployment will further contribute to the isolation and depression of many of our Boston- area neighborhoods. This is no strategy for times of economic hardship, and it runs contrary to Harvard’s contract with its community to provide education and opportunity to its surroundings in return for tax exemption.

Massachusetts legislators and Smith economics professor James Miller have advocated for taxes on large universities. The current proposal calls for a 2.5- percent tax on university assets valued at over $1 billion. If the state of Washington taxes Microsoft, they argue, why should Massachusetts not tax Harvard? The answer is that we do not want Harvard to act exactly like a business, so we should not treat it like one. We expect Harvard to think of Cambridge and Allston residents and Harvard workers even in times of stress, and the tax breaks are to help Harvard meet those expectations. If they are not met, then Harvard’s status as a nonprofit needs to be reconsidered.

Laura M. Binger is a JD candidate at Harvard Law School. John F. Bowman ’11 is a sociology concentrator in Pforzheimer House. He is a member of the Student Labor Action Movement. Benjamin J. Oldfield is an MD candidate at Harvard Medical School.